High Debt Service, Low Revenue Collection

From
the DMO's quarterly data release, we see that the FGN's domestic debt service
totaled N254bn in Q4 2019, compared with the year-earlier figure of N223bn.
This was the first increase on a y/y basis since Q3 2018, which we view in the
context of the debt structure. The stock of the higher-yielding FGN bonds rose
by N450bn in Q4 while that of NTBs was flat at N2.65trn. As the PFAs, excluded
from the market in OMO bills, invested heavily in the NTBs, so yields on the
364-day paper, for example, tumbled by over 600bps at primary auction in Q4
2019.

On an annual basis, domestic debt service did decline from N1.80trn in
2018 to N1.69trn. Domestic payments account for about 85% of total debt service.

The burden of total debt service is a weak point in Nigeria's credit
dynamics because of the pitifully low revenue generation. According to data
from the federal finance ministry in the public presentation of the 2020
budget, it amounted to N1.81trn in 9M 2018 (64.9% of total FGN revenue), and to
N1.92trn in 9M 2019 (45.2%). The approved 2020 budget has N2.45trn for the full
year (31.1%).

We still feel that there is a little headroom in the projection of
N2.45trn yet rather less than before the latest intensification of the global
headwinds.

FGN domestic debt service payments
(N bn)

Sources:
Debt Management Office (DMO); FBNQuest Capital Research

More substantially, the total revenue figure, notably the projection of
N2.64trn for the FGN's oil revenue, will be cut in the current reworking of the
approved budget. This exercise has become necessary because of the crashing oil
price and the impact of the coronavirus, both domestic (due to lockdowns, for
example) and imported.

The payments peak in the first and third quarters, when the issuance of
FGN bonds is concentrated.

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